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Download a PDFOptimizing ASC Performance through Effective Recruitment: A Proven Inside-Outside Approach
By Chris Bishop, Partner and Senior Vice President,
Acquisitions and Business Development
“How do we improve our financial results?”
“Where can we find more cases?”
These are easily the most common questions asked in the ambulatory surgery center (ASC) industry, especially at existing centers that are struggling financially. Such centers constitute about half of the approximately 6,000 surgery centers in the United States. Add in the many centers that are only moderately profitable or not meeting their initial targets, and the need for performance improvement becomes even clearer.
Skeptics may see this as reason for pessimism. After all, no surgeon invests in an ASC to just barely break even. And it's true that business problems can seem to be overwhelming when the financial pressure is intense. However, based on my experience recruiting surgeons and our proven approach at Blue Chip, I believe it's possible to turn around failing centers and optimize the performance of those seeking improved financial results.
The truth is, many problems can be solved straightforwardly and quickly by increased volume. That's why it's critical for ASCs to always be in recruitment mode. Until a center is at capacity, its owners must keep recruiting. And once a center reaches full utilization, management should consider long-term succession plans and bringing on younger, minority owners to replace doctors considering retirement within 5-10 years.
At Blue Chip, we believe effective recruitment strategies are as important to ASC success as strong payer contracts and business best practices, like efficient scheduling and OR utilization. That's why our approach to recruitment, highlighted throughout this article, focuses on both "inside" and "outside" components, and is designed to optimize near-term performance and longer-term growth.
The Inside View: Commitment Starts with the Board
While many ASC owners look outside for growth, nearly every center has opportunities to drive easier growth from within. Effective "inside" recruitment starts with capturing every one of the partners' cases that are appropriate for outpatient environments. If partners aren't prepared to meet their commitments, then insufficient volume may not be the center's biggest problem. Top-performing centers almost always have a core group of highly motivated physician-owners who recognize the value of ongoing recruitment and effective strategies for growing the business.
Diagnose Problems:The first step should be to understand where the shortfalls are occurring - specifically, who is and who is not bringing eligible cases. The case utilization index and volume projections that were used to right-size the surgery center in the first place are invaluable tools for tracking the performance of individual investor. It's surprising to me how many centers don't have formalized documents like these, or insufficiently detailed versions.
The truth is, many problems can be solved straightforwardly and quickly by increased volume.
Along with formal recruitment plans, monthly forecasts and actual case volume reports should be used in board meetings as tools for "positive peer pressure." Additionally, pro formas can quantify the financial benefits if each partner brings only two more cases per month. Similarly, surgeon-owners must clearly see how incremental case volume growth leads directly to higher margins (given that overhead costs are largely fixed). This is a crucial point of understanding, because once an ASC achieves breakeven financial status, each additional dollar of revenue can add up to $0.70 of profit to the bottom line. In other words, recruiting is a highly leveraged investment of time.
Build Accountability: If the problem turns out to be that some surgeons overestimated the number of cases they brought to the center, that fact should be acknowledged, with appropriate adjustments to plans. Because it can be difficult for surgeons to police themselves and for peers to confront one another, a strong corporate partner has an important role to play here, especially in terms of managing to the numbers and holding all the partners accountable.
Once owners have a full grasp on current performance, the next step is to focus on the causes of underutilization and eliminate the barriers to improvements. Internal recruitment strategies must counter the many commonly cited reasons for not bringing cases to the center:
- Preferences with equipment or instruments not available at the ASC
- Investments in another facility or a treatment suite at their office
- Hospital politics – they are hoping for a medical directorship at the hospital, trying to protect their block times or don't want to rock the boat;
- Confusion around out-of-network vs. in-network contracting at center
- Staff or scheduler non-compliance
- Lack of familiarity with ASC staff
- Inconvenience – the center is too far away.
Address Concerns: Direct discussions with partners may alleviate some of the concerns. For instance, demonstrating the marginal benefits of standardization may cause the rethinking of equipment preferences. In some cases, practice audits (approved by Board and then conducted by the ASC administrator and/or the corporate partner's VP of Operations) can make sure all partners are bringing every eligible and appropriate case. Such quarterly audits can also ensure compliance with Safe Harbor regulations.
Another proven technique is for ASC administrators to engage physicians' office staffs and educate them about the types of cases that are well suited for the center. It's critical that schedulers, who so often serve as gatekeepers, are involved in these discussions. In fact, some physicians may not even realize the missed opportunity of scheduling ASC-appropriate cases elsewhere, such is their trust in their schedulers.
Engage Administrators: During successful surgery center turnarounds, I've seen administrators host mandatory scheduler luncheons at the ASC (with surgeon-owners requiring that their schedulers attend). Schedulers often enjoy these events and appreciate the opportunity to build strong rapport with ASC staff and experience the center's qualities and learn more about the case and payer mix. In other cases, I've seen administrators frequently visit the problem surgeon's office, reviewing past schedules to identify missed cases.
Demonstrating the marginal benefits of standardization may cause
the rethinking of equipment preferences.
Scheduling is another area where both carrots and sticks can be used to boost case volumes. Some surgeons may be able to bring more cases with favorable adjustments to their block times. Conversely, low producers should have their block times reduced or moved to the afternoons. Schedule compression - with the center "turning off the lights" on days with insufficient volumes - is something of a last resort, but the threat of it can motivate surgeons to schedule more cases or exhibit flexibility.
The Outside View: Commitment Starts with the Board
At successful ASCs, a "sales" mentality guides outside recruitment efforts. There is a single responsible executive or team and a well-defined strategy for growth (say 5-10% caseload growth per year). In truth, all surgeon-owners should "talk up" the center to their practice partners and colleagues and keep an eye out for surgeons who could be future owners or can bring cases to the center now. However, assigning management oversight to this task to an individual or small group is critical. It helps instill the idea that recruitment is as important to ongoing operations as, say, billing and claims management. Certainly, it should be an agenda item at every board meeting.
Some partners may claim they aren't comfortable selling. It's helpful to point out, when faced with these objections, that surgeon-owners routinely sell their ASCs – to their patients, for instance, and to nursing and office staff that were likely recruited away from the hospital.
Open Up About Finances: Additionally, we find that some surgeons are not comfortable discussing the financial aspects of their surgery centers with prospective owners, preferring to focus on the clinical benefits. In these cases, it's critical that prospect have a meeting with their administrator or business partner to explore the financial rewards of ownership.
As with inside recruitment, outside efforts start with asking the right questions. Some of the first issues to consider are practical ones. Does the center have space and equipment to add new types of cases? What capital investments are required to add urology or ENT cases?
Analyze the Market: Further, a comprehensive market assessment is necessary. Do urologists have an attractive ASC option elsewhere in town? Maybe one ENT group is tied to a surgery center, while the other ENT group is stuck doing all their cases at the hospital. Or perhaps surgeons operating at other ASCs are interested in a new investment opportunity. As you can see, a lot of thought must go into the what, how and why of increased case volume, as well as the who.
While the best leads and referrals usually come from the core surgeon ownership group, other sources - administrators and OR staff, anesthesia providers and even equipment vendors - can provide qualified leads. It's also a good idea to ask non-owners currently operating at the ASC what it would take for them to increase volume or tell their colleagues about the center. Such physicians may provide valuable input about current operations. Perhaps they will be interested in investing in the center.
A lot of thought must go into the what, how and why
of increased case volume, as well as the who.
Making Contact: Once potential candidates are identified, it's important to think carefully about the first contact. While there is no one right approach, it's critical that the surgeon-candidate hears a compelling 30-second "elevator speech" that briefly highlights the center's unique benefits. Whoever is responsible for making the first contact, he or should be prepared with solid answers to the likely questions. If the first meeting goes well, a formal visit or tour of the center may be in order. While one surgeon-owner may bring the referral, it’s critical that candidates meet all or most of the surgeon-owners and key staff members, including the administrator, early in the process.
At some point, candidates should share their case projections so that they can be validated by the managing partner and fed into the business plan. While a strong caseload is critical, it isn't the only criteria for evaluating potential new investors. Clinical reputation, personal working style and willingness to engage with the center are all important factors to consider. Outpatient surgery centers are very much a team sport, and non-engaged or complacent partners are a frequent - and underestimated - cause of sub-par performance.
Closing the Deal: The final step in recruitment involves a detailed buy-in presentation, with copies of the Operating Agreement offered for review as well. Assuming interest is strong, a trial period of 60 days should be initiated, to ensure the new potential partner is a good fit, culturally and clinically. Actual case costs, outcomes and patient satisfaction should be monitored closely during this time, as well as the prospects' willingness to schedule all their eligible cases at the center.
Think Small: One last key point: while conventional wisdom holds that all surgeon-owners should hold equal equity shares, we do not believe that it should be mandatory. In fact, offering new owners a smaller equity stake can be a very effective recruitment strategy. For one reason, the opportunity to purchase a smaller share is potentially very attractive to younger surgeons. And it can help mitigate the dilution fears of the existing owners.
Offering new owners a smaller equity stake can be a very effective recruitment strategy.
Recruitment in the Big Picture With national case volume rates rebounding from two years of difficult economic conditions, we believe this is a prime time for recruiting surgeons. Many surgeons are exploring alternative means to supplement or rebuild reduced incomes. Thus, the candidate pool is expanding, and many may be willing to sign up for 60-day "dating" periods.
Similarly, a clear strategy should be in place for recruiting future owners and selling ownership to new partners. While many surgeons are understandably reluctant to dilute their positions, underutilization is a far greater risk, in our experience. Surgeons must clearly understand that a smaller ownership percentage of a more profitable business is preferable to a larger ownership percentage of a marginal business.
Underperforming centers remain a serious problem across the industry. But there is good news in that the causes of sub-par performance are usually similar and therefore solvable. ASC owners who exhibit full commitment and seek the right business partners - those with the right skills, knowledge, attitude and experience - will have a successful turnaround story to tell that includes both inside and outside plotlines.